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Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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• A US company has bought a machine worth 3 million euros from a German manufacturer with payment due in three months. The treasurer finds that DeutscheUSA (a fictitious name), a large commercial bank, bids euros for $1.5000 and offers euros for $1.5010 in three months' time. He readily agrees and locks in that price. Suppose DeutscheUSA would like to hedge its trade. It finds that a German importer hoping to buy 2 million euros worth of computer parts from the United States in three months' time. They also agree to trade. What is DeutscheUSA's profit and risk exposure after three months' time? O a. A profit of 1,000 US dollars plus risk exposure on 2 million dollars. O b. A profit of 2,000 US dollars. O C. A profit of 2,000 US dollars plus risk exposure on 1 million dollars. O d. A profit of 2,000 US dollars plus risk exposure on 1 million euros.
Transcribed Image Text:• A US company has bought a machine worth 3 million euros from a German manufacturer with payment due in three months. The treasurer finds that DeutscheUSA (a fictitious name), a large commercial bank, bids euros for $1.5000 and offers euros for $1.5010 in three months' time. He readily agrees and locks in that price. Suppose DeutscheUSA would like to hedge its trade. It finds that a German importer hoping to buy 2 million euros worth of computer parts from the United States in three months' time. They also agree to trade. What is DeutscheUSA's profit and risk exposure after three months' time? O a. A profit of 1,000 US dollars plus risk exposure on 2 million dollars. O b. A profit of 2,000 US dollars. O C. A profit of 2,000 US dollars plus risk exposure on 1 million dollars. O d. A profit of 2,000 US dollars plus risk exposure on 1 million euros.
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